US Supreme Court Restores Payroll Tax Exemption for Catholic Charities, Strikes Down Wisconsin's Rule
The US Supreme Court has unanimously overturned the Wisconsin Supreme Court's ruling that required the Catholic Charities Bureau to pay unemployment insurance payroll taxes (Catholic Charities Bureau, Inc. v. Wisconsin Labor & Indus. Review Comm'n, U.S., No. 24-154, 5 June 2025). The US Supreme Court found that the state's interpretation of Wisconsin Statute §108.02(15)(h)(2) (see Note) unlawfully conditioned the exemption on a non-profit's willingness to proselytize or serve only its own faith community. By striking down this form of denominational discrimination, the US Supreme Court restored the Charities' exemption and reaffirmed that tax statutes must apply neutral, secular criteria.
Wisconsin maintains its unemployment fund through employer payroll taxes. Since 1970, Congress has excused non-profits operating primarily for religious purposes from unemployment compensation taxes under the Federal Unemployment Tax Act. In 2016, the Catholic Charities Bureau and four sister entities – each supervised by the Diocese of Superior – requested recognition of this exemption from the Wisconsin Department of Workforce Development (Department). These agencies employ roughly 500 people and provide services such as job coaching, daily-living assistance, and disaster relief without requiring clients or staff to share their religious beliefs.
While the Department conceded that the petitioner is supervised and controlled by the Roman Catholic Church, thereby satisfying one of the two statutory criteria for exemption, it found that the organizations were not operated primarily for religious purposes. This triggered a nine-year legal battle culminating in the Wisconsin Supreme Court affirming the tax in 2024.
The petitioners sought review by filing a petition for a writ of certiorari, which the US Supreme Court granted in December 2024 (seeSupreme Court to Decide if Denial of Unemployment Tax Exemption to Catholic Charity Subsidiaries Violates First Amendment (18 December 2024)).
In its 5 June 2025 Opinion, the US Supreme Court held that the Wisconsin Supreme Court's interpretation amounted to denominational discrimination. The First Amendment requires tax laws to remain neutral with respect to religious beliefs and practices. A rule that favours proselytizing ministries while penalizing those that serve the broader community based on religious motivation violates this principle.
The US Supreme Court also rejected Wisconsin's arguments regarding fiscal concerns and the need to avoid church-state entanglement, finding that these concerns did not justify the state's narrow theological distinctions. In addition, the Supreme Court noted that the Catholic agencies run their own church-managed benefit plan comparable to the state program, and that the exemption applies on an organizational basis, without regard to whether individual employees perform religious functions.
The US Supreme Court accordingly reversed the Wisconsin Supreme Court's decision and remanded the case for further proceedings consistent with the Opinion.
Note: This subsection of Wisconsin law exempts a non-profit from paying state unemployment insurance payroll tax if the organization is controlled by a church or association of churches and is operated primarily for religious purposes.
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